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Chapter 06
Perfectly Competitive Supply
A. the profit earned from the sale of the next unit is greater than the profit earned on the sale
of the last unit.
B. the cost of making the next unit is less than the revenue gained by selling the next unit.
C. the quantity demanded of the seller's output is greater than zero.
D. the price that could be charged is greater than the equilibrium price.
3. According to the cost-benefit principle, you should switch to another task or job when:
A. the benefit from performing the new task is less than the benefit from continuing to
perform the original task.
B. the benefit from performing the new task just exceeds the opportunity cost of performing
that new task.
C. your productivity at the first task has diminished to the point at which the benefit from
continuing with that task is zero.
D. the opportunity cost of performing the original task is less than the benefit of performing
the original task.
4. A person's reservation price for performing a task equals
5. Your neighbors have asked you to look after their dog while they are on vacation. It will take
you one hour per day to feed, walk, and care for the dog, which you can do either before or
after you go to work. Your regular job pays $10 per hour, and you can work for up to eight
hours per day. The smallest amount of money you would accept to take this job is:
A. $10 per day, because that is your opportunity cost of one hour of work.
B. $15 per day, because overtime wages are generally equal to 1.5 times your regular wage
when you work more than eight hours in one day.
C. zero, because your regular job is not available for the ninth hour of work.
D. the value of one hour of leisure, which is greater than zero.
6. Why are you more likely to see a poor person picking up aluminum cans than a wealthy
person?
Refer to the information above. What is John's hourly opportunity cost of cleaning windows?
A. $14
B. $8
C. $7
D. $2
8. John is trying to decide how to divide his time between his job as a stocker in the local grocery
store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows
for the businesses downtown. He makes $2 for every window he cleans. John is indifferent
between the two tasks, and the number of windows he can clean depends on how many hours
he spends cleaning in a day, as shown in the table below:
A. $14.
B. $18.
C. $7.
D. $2.
9. John is trying to decide how to divide his time between his job as a stocker in the local grocery
store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows
for the businesses downtown. He makes $2 for every window he cleans. John is indifferent
between the two tasks, and the number of windows he can clean depends on how many hours
he spends cleaning in a day, as shown in the table below:
The first hour John spends cleaning windows costs him ________ that he could have earned in
the grocery store.
A. $2
B. $7
C. $14
D. $18
10. John is trying to decide how to divide his time between his job as a stocker in the local grocery
store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows
for the businesses downtown. He makes $2 for every window he cleans. John is indifferent
between the two tasks, and the number of windows he can clean depends on how many hours
he spends cleaning in a day, as shown in the table below:
A. $2
B. $14
C. $8
D. $7
11. John is trying to decide how to divide his time between his job as a stocker in the local grocery
store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows
for the businesses downtown. He makes $2 for every window he cleans. John is indifferent
between the two tasks, and the number of windows he can clean depends on how many hours
he spends cleaning in a day, as shown in the table below:
Does the 3rd hour spent cleaning satisfy the cost benefit principle?
Refer to the information above. What is the smallest amount of money per window cleaned
that would induce John to spend at least one hour per day cleaning windows?
A. $7
B. $1
C. $3
D. $2
13. John is trying to decide how to divide his time between his job as a stocker in the local grocery
store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows
for the businesses downtown. He makes $2 for every window he cleans. John is indifferent
between the two tasks, and the number of windows he can clean depends on how many hours
he spends cleaning in a day, as shown in the table below:
What is John's reservation price for the 4th and 5th hours spent cleaning windows.
Refer to the information above. If we plot John's opportunity cost per window on the vertical
axis and the number of windows cleaned each day on the horizontal axis, we will have John's
_______ curve for window-cleaning services.
A. production possibilities
B. supply
C. benefit
D. demand
15. Your math professor has assigned 20 homework problems that are due next week. After
working for an hour, you notice you have completed 4 problems. After another hour, you have
completed 3 more problems. During the third hour, you finish 2 problems. What economic
principle best explains this?
A. The equilibrium principle: the supply of problems is greater than your demand for problems.
B. The increasing opportunity cost principle: you completed the easiest problems first.
C. The cost-benefit principle: the benefit of working an additional problem is less than the
cost.
D. The principle of comparative advantage: you are better at English than at math.
16.
The figure above shows a seller's opportunity costs. What is the seller's reservation price
when producing 250 units?
A. $2
B. $4
C. $8
D. $14
17.
The figure above shows a supplier's opportunity costs. If the market price for this good is $6,
how many units would this supplier produce?
A. 50
B. 150
C. 250
D. 300
18.
The figure above shows a supplier's opportunity cost. The relationship between price and the
quantity produced is _______ making this curve slope ____.
A. positive, downward
B. positive, upward
C. negative, downward
D. negative, upward
19.
The figure above shows one seller's opportunity costs. If the market consists of 50 identical
sellers, how much will be supplied in the market at a price of $14?
A. 350
B. 1,750
C. 17,500
D. 175,000
22. As the market price of a service increases, more people will decide to perform that service
because:
A. maximize revenue.
B. maximize profit.
C. minimize cost.
D. maximize output.
24. Total revenue minus total explicit and implicit costs defines:
A. gross earnings.
B. profit.
C. marginal earnings.
D. net worth.
25. A firm's total profit equals:
26. Which of the following statements is true for both General Motors and a locally owned
restaurant?
27. When economists use standard supply and demand theory, they are assuming that the supply
curve describes:
A. all firms.
B. firms that operate in perfectly competitive markets.
C. firms that face perfectly elastic supply.
D. Firms in the short run.
28. Which of the following is a condition that is necessary for a market to be perfectly
competitive?
30. In which of the following markets do all firms sell the same standardized product?
A. Four-door cars
B. 2% milk
C. Desktop computers
D. Sandwiches
31. Last summer, Casey took fresh vegetables to sell at the Farmer's Market, but this year, Casey
did not plant any vegetables and went to work at the local bank.
Refer to the information above. If Casey's decision to change careers did not change the
market price for vegetables at the Farmers' Market, it is because:
Refer to the information above. It was easy for Casey to leave the vegetable growing business
because:
33. Last summer, Casey took fresh vegetables to sell at the Farmer's Market, but this year, Casey
did not plant any vegetables and went to work at the local bank.
Refer to the information above. If you observed Casey's career change, you might guess that:
A. Casey's opportunity costs of gardening exceeded Casey's benefits from working at the
bank.
B. Casey's opportunity costs of working at the bank exceeded Casey's benefits from
gardening.
C. Casey's opportunity costs of working at the bank exceeded Casey's opportunity costs of
gardening.
D. Casey's opportunity costs of gardening exceeded Casey's opportunity costs of working at
the bank.
A. If the firm increases its price above the market price, it will earn higher revenue.
B. If the firm decreases its price below the market price, it will earn higher revenue.
C. If the firm increases its price above the market price, it will earn zero revenue.
D. The market is unable to reach a new equilibrium if prices change.
A. has some degree of influence over the price it charges for its output.
B. charges any price it wishes.
C. revenue maximizes.
D. confronts a perfectly inelastic demand curve.
38. Jenny sells lemonade by the street during the summer time. Several other kids also sell
lemonade in Jenny's neighborhood.
Refer to the information above. The lemonade market in Jenny's neighborhood is more likely
to be perfectly competitive if:
Refer to the information above. If the lemonade market is perfectly competitive and price is
already at the equilibrium level, Jenny can increase her revenue if she:
40. Jenny sells lemonade by the street during the summer time. Several other kids also sell
lemonade in Jenny's neighborhood.
Refer to the information above. Suppose that the first week of summer, Jenny charged 25
cents for an 8-ounce cup of lemonade, her next-door neighbor Sam charged 50 cents for an 8-
ounce cup of lemonade, and Alex across the street charged 15 cents for an 8-ounce cup of
lemonade. What is most likely to happen?
41. Jenny sells lemonade by the street during the summer time. Several other kids also sell
lemonade in Jenny's neighborhood.
Refer to the information above. The lemonade stands are perfectly competitive because:
A. the kids get their ingredients from home and don't have to pay for them.
B. it is easy to open a stand and easy to close it down.
C. the table, cups and lemonade pitchers used in the stands are productive resources that are
only useful for lemonade stands.
D. the kids do not have regular jobs, so their opportunity costs are zero.
42. Which firm is most likely to meet the condition for perfect competition that resources are
mobile?
A. A farm
B. A sidewalk pretzel vendor
C. A department store
D. A movie theater
43. It takes a bus and a driver to produce bus service for the students in a college town.
Therefore, the bus and the driver are the ___________ for bus service.
48. When some factors of production are fixed, in order to increase production by equal amounts,
a firm would need to add successively:
49. Which of the following factors of production is likely to be fixed in the short run?
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